The Intelligent Investor is a book, first published by Benjamin Graham, a Wall Street financier and professor, in 1949. Warren Buffett credits this book with being the foundation of his investment philosophy. And it has been called “the best book ever written on investing.” The reason for that is because the principles and philosophies within it are as true today as they were when written.
The Intelligent Investor is the bible of investment strategy. It tells you how to select stocks and how to manage your portfolio, in simple, straightforward language anyone can understand.
An investor and former hedge fund manager looks at the importance of rational thinking, the secrets behind value investing, and how to make stock market predictions with the help of a finance professional.
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) is recommended by Warren Buffett and Benjamin Graham, one of the greatest investors in history. In this revised and updated edition of Graham’s classic book, Jason Zweig offers invaluable advice for both beginning and experienced investors. He shows how diversification and disciplined buying can build your wealth for years to come, how market timing is a self-destructive strategy, why investment partnerships often don’t work as planned; why it’s important to keep track of your investments; how to use bonds to increase income or limit downside risk in your stock portfolio; tips on when to buy growth stocks or bank stocks; when to sell–and much more!
The Intelligent Investor Uverview
The Intelligent Investor is one of the most important books on investing ever written. It was Warren Buffett’s preferred book on the subject, and he wrote that it “will educate you in ways that few other books will.”
In fact, the book was so influential that it inspired a whole generation of value investors. What is a value investor? They look for stocks that are trading below their intrinsic worth (the actual value of the company).
For example, if you buy $100 worth of stock in a company that earns $5 per share, then your shares will be worth $100. You may be able to sell them later at that price or above it—or not at all! You can’t predict how the market will treat your stock or what its value will be tomorrow. But if you buy $100 worth of stock in a company that earns $10 per share, then your shares are worth $200. If you sell them later at their intrinsic value—$200—or even if you don’t sell them at all, then you’ve made money!
The Intelligent Investor PDF
Thinking about your investment portfolio is like trying to plan a ski trip with friends. Everyone has different ideas of what they want, and some people would be happy to go on the same trip again and again, while others are always looking for something new. Regardless of where you sit on this spectrum, everyone in the group wants to stay safe. And that’s where The Intelligent Investor comes in: it’s a complete guide book for anyone who wants to invest wisely over the long term. Whether you’re just starting out or you’ve been investing for decades, it’s essential reading from one of the world-renowned experts in value investing—and now we’re offering it free!
The Intelligent Investor PDF Summary
The Intelligent Investor is a book on value investing by Benjamin Graham and David Dodd. The book is widely considered to be the best book ever written on investing. It was first published in 1949, after Graham and Dodd had taught their investment principles for many years at Columbia Business School.
Key Lessons from “The Intelligent Investor”
The Intelligent Investor Summary
This book is a classic in the world of investing. It was written by Benjamin Graham and Jason Zweig, who also wrote the introduction to this edition. The book covers Graham’s value investing principles, which are still valid today. As you might expect from a book that was originally published in 1949, it spends some time talking about stocks and bonds separately before moving on to stocks as an asset class (the “corporate control” section).
In particular, you’ll learn:
- Why investors should focus on intrinsic value rather than price (or market capitalization) when assessing companies’ prospects
- How to calculate intrinsic value based on your own estimates of future cash flows
Lesson 1: Investing Is a Science, Not an Art
There are many different approaches to investing. But there are also some common themes that run across all the different strategies. One of these is the idea that investing is not an art—that it can be studied, analyzed and put into practice with a level of precision and consistency that is not possible in other areas of life. As Charlie Munger once said: “You’re just playing games here if you think [investing] is an art. It’s a science. I see what works and I do more of it; I see what doesn’t work and I stop doing it.”
Lesson 2: Patience and Discipline Are the Secrets to Successful Investing
- Patience and discipline are the keys to successful investing.
- Don’t panic when your investments go down (or up).
- Stay the course, even if it’s painful and difficult.
Lesson 3: Own Shares of Solid Companies with Wide Margins of Safety
The margin of safety is the difference between the market price of a company and its intrinsic value. You’re looking for companies that are undervalued relative to their actual worth. The greater the margin of safety, the more certain you can be that your investment will be profitable.
A solid company has many years of history with consistent profits, low debt and little or no debt-related problems. It also has strong cash flow from operations (which means it’s not dependent upon financing). Finally, it has a good balance sheet with plenty of assets to cover liabilities in case things go wrong with operations or other expenses arise unexpectedly.
The wider this gap between intrinsic value and price becomes, the more likely it is that an investor will make money on an investment in that particular stock over time—as long as nothing unexpected happens in terms of changes in demand for goods made by this company or some other factor affecting its earnings potential.
Lesson 4: Know What You Own at All Times
Knowing what you own is essential to intelligent investing. The more you know about your holdings, and the more information you have access to, the better decisions you can make.
- Know what is happening in the business: If something happens in a business that has an effect on its value and ability to generate cash flow, then it will affect the price of your investment. Therefore, if there are developments in a company’s strategy or performance that could affect its future prospects, they should be considered carefully before making any decision regarding how long to hold onto your investment.
- Know what other investors are thinking: If many other investors believe that a stock may fall soon because of some negative news or unexpected event (such as a new competitor entering its market), there may be no reason for them not to sell right away so as not lose out on profit opportunities elsewhere. This could lead them into selling unexpectedly high volumes at discounted prices just before things turn around; thus causing further declines in share prices when these traders realize their mistake too late!
Lesson 5: Use the Margin of Safety to Avoid Losses
The margin of safety is the difference between the price you pay for a stock and its intrinsic value. It’s a buffer against bad luck and errors in your analysis.
The more conservative you are in your assumptions, the more likely it is that you’ll earn an acceptable return on your investment. If we were to buy a stock at $50 per share when it was actually worth $75, then a loss of 50% isn’t so bad—we still have 25% left in our pocket. But if we had paid $150 for that same stock when it was actually worth $75, then losing 50% would leave us with nothing!
Lesson 6: Hold Onto Your Winners, Get Rid of Your Losers, and Don’t Be Tempted by Extremely Cheap Stocks
One of the most important lessons in investing is also one of the hardest to master: stick with your winners and get rid of your losers.
When you buy a stock, it’s easy to get excited about it—often, the company seems like it’s on track to become some sort of behemoth in its field. This can lead many investors to overpay for stocks, which means that even if their investment goes up in value (which most investments eventually do), they tend not to make as much money as they could have had they paid less for the stock in question. If a company isn’t delivering what was promised when you bought its shares (or if nothing specific was promised), then there’s no reason why you should continue holding onto those shares when there are other opportunities out there waiting for your money.
Lesson 7: Be Smart with Other People’s Money Always Put Yourself in a Safe Position before Investing
You should always be able to sell when you have to. You should be able to sleep at night knowing that you can make your exit if the need arises.
Here are some ways of ensuring this:
- Buy at a discount and sell at a premium. If a stock is selling below its intrinsic value, then it’s worth buying—even if the company has challenges in front of it. Conversely, if there’s optimism about future growth prospects, then investors will pay a premium for shares of that company—but only as long as these expectations don’t seem like hype or speculation (see Lesson 6!).
- Ensure that your investment will never lose more than 25% of its value. This way, even if things go awry for your pick and its share price drops by half or more, you’ll still come out ahead because you will still have made money on your initial investment even after selling everything off in order to cut losses quickly before they get too great–and before they spread throughout other financial markets like wildfire!
Lesson 10: The Main Risk Lies in the Inability to Sell When You Have to
The risk of not being able to sell when you have to is greatly magnified by the existence of market-liquidity providers—trading firms that stand ready to buy at any time and who, when they do so, invariably drive up the price. For this reason, it is wise to use both stop-loss orders and circuit breakers as a way of protecting yourself against these risks.
When setting your stops, think about what price will cause you concern if reached. The ideal place for your stop depends on the nature of your investments: for example, for high-risk stocks with volatile prices that could easily fall 50% in a day (think Enron), place them near where the stock was trading before its run-up; if it wasn’t moving much before then (such as IBM), set them far above its current level but still within reason (say $5 from today’s close). As time goes on and you get more comfortable with investing or get more aggressive about buying stocks whose price might fall drastically overnight during crises like 9/11 attacks or major bankruptcies like Lehman Brothers’ 2008 collapse, move closer towards those prices until eventually they become your own psychological barrier beyond which no price would be tolerated because it would signal either panic selling or simply loss aversion kicking into play.
The Intelligent Investor is essential reading for value investors.
The Intelligent Investor is essential reading for value investors. You’ll learn the importance of valuing a company based on its intrinsic value (what it’s worth), rather than its share price.
It will help you understand the stock market, and how to use data to make better decisions when investing in it. It explains things like margin of safety, Mr Market, fair value estimate and how to estimate intrinsic values by looking at historical performance and free cash flow generation potentials.
I hope this summary helped you gain new insights on how to invest successfully.